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Exam 16: Measuring the Cost of Living

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Question 41

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With respect to the consumer price index,which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

A) rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B) rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
C) remains constant,while the price of a loaf of bread rises from $2.00 to $2.30.
D) falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.

E) A) and B)
F) All of the above

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Question 42

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When a new good is introduced,consumers have more variety from which to choose,and this in turn increases the cost of maintaining the same level of economic well-being.

A) True
B) False

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Question 43

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The real interest rate tells you how fast the purchasing power of your bank account rises over time.

When the consumer price index is computed,the base year is always the first year among the years being considered.

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006.The consumer price index was 177 in 2001 and 265.5 in 2006.Henri's 2001 salary in 2006 dollars is

Scenario 16-2 The price tag on a golf ball in 1975 read $0.20,and the price tag on a golf ball in 2005 read $2.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3. -Refer to Scenario 16-2.In 1975 dollars,a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent.A year later,after Rosa has accumulated $20 in interest,she withdraws her $120.Rosa's purchasing power

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years,then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

The consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Scenario 16-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year.Her son,Josh Holloway,is an accountant today and he earned $210,000 in 2008.The price index was 17.6 in 1944 and 184 in 2008. -Refer to Scenario 16-3.Sue Holloway's 1944 income in 2008 dollars is

With respect to the consumer price index,which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

During a certain year,the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent.For that year,

The term inflation is used to describe a situation in which

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

The real interest rate is the interest rate corrected for inflation.

When consumer spending is broken down into the major categories of goods and services,the largest single category is spending on transportation.

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year.In 2002,the basket's cost was $50; in 2004,the basket's cost was $52; and in 2006,the basket's cost was $54.60.The value of the CPI in 2004 was

The U.S.economy has never experienced deflation.

Consumer price index = * 100.